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Ruling

Subject: interest expenses

Question

Are you entitled to a deduction under 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for any of the interest you incur on your new joint loan?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

Your spouse owned a rental property in their name solely.

You agreed to purchase the property from them, which you would also use as a rental property and with the title held in your name solely.

You and your spouse purchased a property as joint tenants which you would use as your home.

You obtained a borrowing in your name solely, secured by the rental property and for which you state was to fund your contribution to the purchase of the home.

You and your spouse obtained a joint borrowing, secured by your home and for which you state was used to fund your purchase of the rental property from your spouse.

The purchaser's settlement statement for your home shows the amount available for settlement of your joint loan (per the letter from your bank authorising the advance of your joint loan) was applied to the purchase of your home.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows you a deduction for any loss or outgoing that is incurred in gaining or producing your assessable income, or is necessarily incurred in the carrying on of a business, to the extent that it is not of a private, capital or domestic nature.

Whether interest has been incurred in the course of gaining or producing assessable income generally depends on the purpose of the borrowing and the use to which the borrowed funds are put.

Where a borrowing is used to acquire an assessable income producing asset, or relates to expenses of an assessable income producing activity, the interest on this borrowing is considered to be incurred in the course of gaining or producing assessable income: Taxation Ruling TR 95/25

In you situation, it is considered the joint loan was applied to the purchase of your jointly held home and the interest incurred on this joint loan is therefore private in nature and no deduction is allowed. This is based on:

· the fact that the loan is in joint names (and therefore your spouse cannot be said to have jointly borrowed funds to pay themselves in respect of the purported sale of his interest in the rental property to you)

· the settlement statements clearly indicate that the joint loan was applied to a private purpose, ie the purchase of your home.